Much has been said about managing the risk of your investments. One subject within your risk assessment is the jurisdictional risk. How politically stable is the area? What are the respective mining laws and for how long have they been in place, unchanged preferably?
Some important considerations to make:
- The company’s spot on the Lassonde Curve: Producer, Developer, Explorer
- Your intended hold period/Time frame
- Continent < Country < Province differences in the mining laws, taxes, political landscape, community point of view, local mining history, etc.
- Recent local incidents/influencers. Ex. Barrick’s dispute in PNG with their(?) Porgera Mine is directly affecting investors take on the local jurd. risk, negatively affecting other miners in the country (K92). Justifiable or not, that’s your call to make.
Strong Jurd. Risk Weighting : Producers & developers
For a producer, you are looking at a 10-30y cycle they need to work with local regulations and influences. You can’t relocate the mine. It needs to be a win-win on good terms between all parties.
You generally buy a producer for the exposure to the underlying commodity and any company specific catalysts (extending LOM, lowering AISC, building additional assets, etc.). For this to play out, you typically watch the quarterly results and the trend of their numbers. Are they delivering on their promises or not? The hold period tends to be longer to see those improvements and/or the commodity leverage play out.
For a developer it’s maybe even a double whammy, no exciting step-outs holes left to show, boring technical studies where only the nerdy shareholders will even care to read past the headline numbers. Add that investors will be envisioning the next 10-15y in a specific jurisdiction with no to little confirmation or trust in a good ending, holy shit. Who is going to finance this? It can be dark years for sure.
One angle to play this is to keep a track of companies close to the end of that dark period. With their zombie share price, 2-3y hangover of absolutely no interest, they come to the point where finance is miraculously found and a construction decision is being made. The game is back on.
Lower Jurd. Risk Weighting: Explorers
For an explorer, the main challenge will be to get the right concessions, permits, land access deals, water usage, local (decent) drillers, etc.
We’re looking for drill succes first, postal code second.
While an explorer of course needs to know in which structure he is operating, for the shareholder, this period of pure exploration is ideally 1-2y (discovery hole, until the less exciting infill drilling). So for a shareholder the risk that something fundamentally changes within that time frame is way lower than the risk for the producers. Again, here we see the important difference between the companies time frame and yours.
One trap here is that the permitting and getting ‘drill ready’ often tend to stretch the original timelines of the said companies. Watch for the needed permits and the local permitting path. It often pays to wait to enter, until all is cleared for drilling to start.
An explorer, you buy for the imminent (it’s always imminent) world class discovery in their next drill program. If they don’t hit, you sell. If they hit, you smile, cash in some chips and wait to see what the resource potential is, aka step-out drilling. Reflect on this for yourself, but often this is within a timeframe of 1-2y with many playing just the drill season (buying the rumour, selling the news), so only a few weeks or months.
Does it really matter if it’s than located in Quebec, Peru or Namibia? Yes of course, for valuating what in the end any potential suitor would bid for it. But the point is, 50m @ 5g/t in Namibia will be more value adding than 3m of 2g/t gold in Quebec. We’re looking for drill succes first, postal code second. That’s key, the most exciting fun is with decent results from the truth machine. Nothing comes close. Maybe if Sprott enters via a private placement if that is your thing…
A sneaky way to add-in some ad for African plays, have a look at below projects, where most where delivered AHEAD of schedule and UNDER or ON budget. Find me those in Canada and/or Australia please. Thanks Orezone for the slide.
Cheers, Pete
